Vanguard attempts to put a Value of Return on Financial Advice.  How much Is expert financial advice worth? As defined by Vanguard, 3.75% of the value of even basic financial advice is significant. But in my book, it doesn’t go far enough. Fiduciary Financial Planning guidance can often be worth more, some might even say it’s PRICELESS!  

I’ll admit I was a bit surprised to see mutual fund behemoth The Vanguard Group’s foray into quantifying the value of professional financial advice. This is because Vanguard is mostly known for its low-cost index funds and most often sells directly to individuals rather than through financial advisors on behalf of their clients.  But it’s very much worth a look.

According to Vanguard’s website, an average financial advisor may be able to boost a client’s portfolio by as much as 3.75% per year over time. They call it Advisor Alpha, in layman’s terms this means “value of an advisor to your bottom line.”  While 3.75% may sound like a huge estimate of value, Vanguard Financial Advisor report estimates only take into account the simple day-to-day activities of a basic investment manager rather than the holistic guidance of a real financial planner.

Vanguard’s five areas where a financial advisor should add value:

• Behavioral coaching help investors stick to a disciplined approach. Or put another way, helping people avoid the big mistakes that can really cost you tons of money. (Estimated value 1.5% of the portfolio)
• Asset allocation to divvy the investments wisely between retirement accounts and taxable accounts. (Estimated value 0 to 0.75% of the portfolio)
• Cost-effective investment because mutual funds aren’t run for free. Even the cheapest from Vanguard has fees, trading costs, cash drag or varying tax efficiencies. And for those rare birds who are ambitious enough to dig through a full prospectus, good luck finding all the hidden fees. (Estimated value 0.45% of the portfolio)
• Account rebalancing helps keep the risk/return consistent with the client’s specific situation since over time any diverse portfolio will move away from the optimal target allocation. (Estimated value-added 0.35% of the portfolio)
• Retiree spending strategies to help guide people on how best to spend their accumulated assets. This should include not only dollar amounts but indicate from which accounts and/or investments.  (Estimated value-added 0.70% of the portfolio)

If the Vanguard Financial Advisor’s five basic principles sound good, that’s because they are. But in reality, they represent the bare minimum that any financial professional should be doing for their clients. You deserve more and you deserve better. True comprehensive fiduciary Financial Planning advice may be worth more, way more.

Real benefits of the best financial advice

Entrusting a fiduciary Certified Financial Planner™ and/or Accredited Investment Fiduciary™ – that is, professionals who are legally bound to put their clients’ best interests ahead of their own – is the best way to secure financial advice that meets your specific needs and goals.

I could fill a book with the ways I and my fiduciary brethren have helped our clients move closer to financial freedom over the past decade.  As sound as they are, the gist of Vanguard Financial Advisor  points concentrates on “investment return” versus “investor return” that also includes:

• Holding you accountable to get on track for your financial goals.
• Congratulating you when something great happens.
• Helping you save more towards your goals.
• Helping you buy the right house at the right price (or staying put in a great apartment).
• Maximizing employee benefits like stock options, health insurance, and even 401k plans.
• Minimizing the drag of taxes on your life through tax harvesting and other strategies.
• Imparting peace of mind and reducing stress.
• Being the go-to person for anything financial.
• Taking the emotions out of tough life decisions.

What’s the big deal about 3.75% – the Vanguard Financial Advisor Value?

Doing the math, a 3.75% increase in return is ENORMOUS and could mean the difference between the financial freedom of a retirement chilling on the golf course versus the servitude of working at the Golden Arches for the entirety of your golden years.

To illustrate the value of the best financial advice, let’s say:

• You started saving $100 per month at age 30 and kept it up until the full retirement age of 67 years young. If you were able to earn 6.25% on your money that would grow to around $173,000. Not too shabby.
• BUT increase that return by an additional 3.75% – bringing the total up to 10% – that $100 per month for 37 years turns into about $461,000. So, you’re putting in exactly the same amount but are ending up with 250% more wealth.

Now, of course, I hope then you’re saving more than $100 per month at this juncture no matter what your age or income. But you can see that through the magic of compounding, the money grows bigger the longer you have the money invested. But unless you are an experienced financial professional or possess astute financial savvy, it’s difficult to get this kind of return on your own.  The first million is much harder to accumulate than your second third or beyond.

The bottom line, you deserve to maximize the value of your hard work.  I would expect Vanguard to undervalue the true worth of professional fiduciary financial guidance as indeed I think they do.  Either way, whether getting average advice or the best advice your situation is improving. This means you are moving closer to your financial goals and financial freedom.

The right advice from the right financial professionals – and make no mistake, I’m talking fiduciary financial planner here – can not only improve your finances but help improve your quality of life . . . and for the rest of your life as well. And the value of that? In my book PRICELESS.

Live for Today, Plan for Tomorrow.

DAVID RAE, CFP®, AIF® is a Los Angeles-based retirement planner with DRM Wealth Management. He has been helping friends of the LGBT community reach their financial goals for over a decade. He is a regular contributor to the Advocate Magazine, Forbes and Huffington Post as well as the author of the Financial Planner Los Angeles Blog. Follow him on Facebook, or via his website www.davidraefp.com

Vanguard Study: Francis M. Kinniry Jr. et al., “Putting Value on Your Value: Quantifying Vanguard Advisor’s Alpha,” Vanguard Research (September 2016).  All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security investment or instrument or to participate in any particular trading strategy. “Vanguard Financial Advisor Value” Copyright 2017.